Work

Optimal Financial Transaction Taxes

Year: 2022

Type: article

Abstract: ABSTRACT This paper characterizes the optimal transaction tax in an equilibrium model of financial markets. If investors hold heterogeneous beliefs unrelated to their fundamental trading motives and the planner calculates welfare using any single belief, a positive tax is optimal, regardless of the magnitude of fundamental trading. Under some conditions, the optimal tax is independent of the planner's belief. The optimal tax can be implemented by adjusting its value until total volume equals fundamental volume. Knowledge of (i) the share of nonfundamental trading volume and (ii) the semielasticity of trading volume to tax changes is sufficient to quantify the optimal tax.

Source: The Journal of Finance

DOI: 10.1111/jofi.13188

Author: EDUARDO DÁVILA

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: Fundación Rafael del Pino

OpenAlex ID: W3124077478

FWCI: 3.296

Cites: 61

Cited by: 37

Related to: 10